Real Estate as Tina Sees It...

Commercial market on road to recovery

November 12th, 2014 9:28 AM

NEW ORLEANS – Nov. 10, 2014 – Economic activity was mixed during the first half of the year, but industry experts expressed confidence that the commercial real estate market is improving during the Commercial Economic Issues & Trends Forum at the 2014 Realtors® Conference & Expo.

Panelists agreed: Improvements in the economy as a whole will spur the commercial market forward.

"The commercial real estate market ordinarily recovers two years behind the economy – but not this cycle," said National Association of Realtors (NAR) Chief Economist Lawrence Yun. "It has taken four years and, fortunately, this year we turned a corner."

In particular, increases in job creation will have a significant impact on commercial practitioners.

"More jobs mean more demand for office space, warehouse space, retail spaces and other commercial spaces," said Yun. "With the economy expanding, commercial activity should be rising. However, do not expect the recovery to occur over night. It will not be a big bang; it will be a steady and gradual increase in demand."

Richard M. Gatto, executive vice president of The Alter Group, expressed a similar sentiment.

"We are going to slowly work our way out of this," said Gatto. "The need for office space is really just starting to become apparent, and multifamily units are still going strong."

According to NAR data, commercial members receive most of their financing from regional and local banks, as well as credit unions. Fifty-five percent of Realtors said they have had difficulty receiving credit from these institutions, mostly due to government regulation.

"The number of members asserting financing difficulties is down from 2013," said Yun. "So it would appear that banks are slowly adjusting their credit standards closer to normal."

Multifamily units were also a popular topic of discussion among the panelists. With rent prices continuing to rise and vacancy rates continuing to decline, all of the panelists agreed that the market should continue to see growth well into 2015 and beyond.

"The general trend is decreased vacancy and increased rent growth," said Yun. "For Realtors specializing in commercial real estate, this means that if this year was good, next year should be better."

The positive trend is also seen in office buildings.

"There is a tremendous amount of urbanization occurring. In many areas, suburbs are beginning to be folded into the city centers," said Gatto. "This change is being driven by employers who are seeking millennial-aged employees and are following younger workers to urban centers and forgoing traditional suburban offices."